How a Nation Becomes Rich: The case of India
A country is ultimately just a group of people inhabiting a shared geography. But the prosperity of a country is not determined by its land, its history, or even the individual abilities of its people. It is determined by whether its subgroups can align around long-term national objectives, especially wealth creation.
Wealth is created by individuals, but sustained prosperity requires collective determination. This means large numbers of people acting in ways that raise productivity, accumulate capital, and build durable institutions. Determination itself is individual. The hard part is scaling it across millions of people who differ in interests, incentives, identities, and past grievances.
This is the fundamental challenge of national development: How do you generate aligned determination across diverse subgroups?
Every successful country solved this problem. Through democracy, authoritarian coordination, strong national identity, or elite consensus. Countries that failed did so not because of culture, geography, or colonization alone, but because their subgroups never aligned on a shared national project.
India’s struggle with prosperity is best understood through this lens.
National Prosperity Is a Subgroup Coordination Problem
No country is a monolith. Each contains:
- regional groups
- linguistic groups
- religious groups
- economic classes
- bureaucratic networks
- occupational guilds
- political factions
- elite coalitions
Each subgroup has its own incentives and objectives.
Development, especially industrial development, requires these subgroups to share:
- A common identity
- A common interest
- A common future
Only when a critical mass of subgroups align around the national goal of becoming rich does a country achieve “take-off.” China used authoritarian coherence. Japan and Korea relied on ethno-national solidarity. Western countries built institutions that aligned subgroups over centuries. The form varied. The substance was the same.
Alignment preceded prosperity.
Why India Struggles: Misaligned Identities and Divergent Incentives
National identity is weak and unevenly distributed
India does not lack pride, but it lacks a deep, unified national identity that acts as a coordination device.
- Some subgroups live in India without prioritizing the idea of “India.”
- The state historically lacked a monopoly on violence; only recently is that consolidating with extremist movements slowly fading away.
- India does not control its information ecosystem; foreign-owned or factional narratives fracture unity. This is a continued problem but there is already awareness of this issue at the national level.
- Government education does not build shared civic identity and is poorly funded. Hence, private education has taken its place, especially at the primary level. This is unique among all prosperous countries. Even open, democratic societies like the US have heavily relied on government-funded primary education for the masses.
Countries that rapidly developed, including non-democracies like China and Vietnam, relied on a strong state-controlled narrative that unified subgroups. India has never had this.
Identity is the first layer of alignment. Without it, collective purpose is impossible.
Even among those who do identify as Indian, incentives diverge sharply
Subgroups that embrace Indian identity do not necessarily prioritize national interests over their own. Examples are everywhere: A bureaucrat’s bribe, a farmer’s subsidy agitation, a state’s linguistic chauvinism, a union’s resistance to reform - these are all expressions of subgroup incentives overriding national goals.
This is exactly what Mancur Olson described: small, organised subgroups impose costs on large, unorganised majorities. India’s political economy is dominated by these “organised minorities,” while the majority remains diffused and economically unmotivated.
“Becoming rich” is not a shared national objective
Perhaps the most underappreciated fact: Many Indian subgroups do not prioritize prosperity. Their reasons could be genuine or malicious or arising from a deep-rooted colonial history. These subgroups want: local control, cultural dominance, security, welfare, religious affirmation, short-term entitlements, low-risk stability.
Few prioritize hard economic transformation, which requires:
- industrial jobs
- capital formation
- competitive manufacturing
- disciplined urbanization
- supply-chain reliability
- productivity over patronage
Politicians respond to the demands they hear. If becoming rich is not a voter priority, it cannot become a political priority.
Determined minorities routinely overpower the diffused majority
India’s majority wants stability and upward mobility, but they are not organised. Subgroups that are organised like farmers’ groups, builders, bureaucrats, elite landowners, unions, linguistic lobbies, local political machines, lobby effectively and block reforms.
A determined subgroup beats a disorganised majority every time, especially in a democracy without narrative control. This is the true structural barrier to Indian prosperity.
Why Manufacturing Is the Real Path to Wealth, and Why It’s Stuck
India cannot become rich through IT and services alone. Every large country, the US, China, Japan, Korea, Germany, became rich through manufacturing first.
Manufacturing requires:
- cheap, mobile land
- dense, affordable cities
- flexible labour
- predictable regulations
- reliable power
- efficient logistics
- large-scale investment
- trusted institutions
Each ingredient is blocked by a powerful subgroup:
| Requirement | Blocking Subgroup |
|---|---|
| Low-cost land | political elites, landowners, builders |
| Urban density | local incumbents, municipal networks |
| Labor flexibility | unions, bureaucracies, state-level interests |
| Regulatory predictability | courts, activists, ministries |
| Logistics | state-level barriers, cartelized transport |
| Power reliability | state utility politics |
| Market-based credit | Banks, political credit networks |
India is not lacking in talent. It is trapped in a political economy equilibrium that doesn’t view manufacturing as important for growth. It’s got too accustomed to IT services and remittance income that helps political elites.
Geography Bends When Subgroups Align
It is fashionable to say geography determines destiny. But history shows the opposite: Aligned and determined subgroups can bend geography to their will.
- The Netherlands: Below sea level but built dikes and reclaimed land for centuries.
- Singapore: Swampy island with no resources. Became a global hub through coherent elite alignment.
- Israel: Desert terrain, built advanced irrigation and agriculture.
- Japan: Mountainous, resource-poor but industrialized faster than any country before it.
Geography presents constraints. Alignment transforms them. Where subgroups are misaligned, even favourable geography is squandered- as seen across parts of Latin America, Africa, and India.
India’s geography is actually excellent for manufacturing:
- long coastline
- large internal market
- arable plains
- strategic location between Gulf and ASEAN
But geography bends only to a determined and aligned nation. Until India’s subgroups align, geography remains unused potential.
Transformation Requires a Shock That Rewrites Subgroup Incentives
Countries rarely escape stagnation voluntarily.
They escape when shocks force realignment:
- Meiji Restoration in Japan
- Park Chung-hee’s reforms in Korea
- Deng Xiaoping’s reforms in China
- Doi Moi in Vietnam
- Glorious Revolution in England
- US Constitution after confederation failure
India’s equilibrium will break only if shocks arrive:
- a technological shock: (automation, supply-chain reconfiguration, green tech)
- a political shock: (centralization, institutional overhauls, new national narratives)
- a geopolitical shock: (US-China decoupling, regional consolidation).
Shocks reorder incentives and collapse old interest-group coalitions.
The Five Conditions for National Wealth
A nation becomes rich when:
- Subgroups share a strong national identity. Identity acts as a unifying coordination mechanism.
- Subgroups prioritize national interests over narrow local interests. Especially in capital formation and industrialization.
- “Becoming rich” is a real, widely shared national objective. Not assumed but socially constructed.
- Powerful determined subgroups cannot override the interests of the majority. Political capture must weaken.
- A major political, technological, or geopolitical shock realigns incentives. Breaks stagnant equilibrium.
When these forces align, countries experience explosive growth. When they don’t, they stagnate - no matter their talent or geography.
In One Line
Nations become rich when enough subgroups agree to become rich together. India’s challenge and opportunity lies entirely in this alignment.
What’s Working for India
- The Indian state is getting stronger. Both the Centre and state governments are steadily increasing their capacity to implement large-scale projects, enforce order, and shape national narratives. Infrastructure development, welfare delivery, and digital governance are improving as state capability consolidates.
- A unified national market is finally emerging. India’s scale is now economically attractive enough that subgroups routinely operate across linguistic and regional boundaries. South Indian filmmakers marketing to northern audiences is just one example of subgroups seeing profit in a shared national space — a key step toward incentive alignment.
- The median Indian voter increasingly prioritizes development. Electoral outcomes over the last decade show a visible shift: roads, jobs, welfare efficiency, and growth matter more than identity-only politics. This aligns political incentives with long-term national prosperity.
- Prosperity-creating forces are becoming understood, but need empowerment. India is recognizing the central role of cities, capital, and entrepreneurship. But real progress requires city independence, professional urban planning, and deep ease-of-doing-business reforms to unlock manufacturing, investment, and R&D.
- The cost of obstruction by determined subgroups is rising. Groups that once blocked national projects - from environmental obstructionists to hyper-local interest groups - now face greater scrutiny. Citizens increasingly prioritize development, and even the courts are acknowledging the need to balance environmental concerns with national progress.
The wheel is already in motion. India’s transformation has begun, but large-scale realignment and prosperity take time.
What’s not working for India
India has a growing rent-seeking culture that is a big risk. This started with political and landholding subgroups blocking progress by keeping asset prices high. Slowly, this changed the culture of the country towards that of rent seeking and not increasing the supply of good quality residential, commercial and industrial real estate. The situation has reached a stagnant equilibrium where the country hasn’t managed to kick-off a large scale industrial revolution because of high input prices. The only way out of this is ensuring deregulation of land and freeing it up from the political control of elites. However, this comes at a huge political cost that no party is willing to undertake. Only a shock of some sort (technological, political, geopolitical, economic) can change the stagnant equilibrium.
Partially, the reason behind the above problem is also because the voting class didn’t have a shared objective of becoming rich via industrialization. However, slowly, the situation is changing and the median voter is prioritising development. More subgroups now need to align towards this objective so that elites holding unproductive assets can be challenged.